Monsanto Co hopes to roll out a new bioengineered, worm-resistant soybean seed for planting in Brazil next season, the firm's local president said, but a successful launch is tied to approval from top-buyer China.
So-called Intacta RR2 Pro is the first genetically modified seed Monsanto has developed exclusively for South America and as it is designed to produce higher yields, it could help Brazil surpass the United States as the world's top soybean producer, building on this year's record crop.
But not without a green light from China, which buys 70 percent of Brazilian soybeans and could create a major headache for Brazilian farmers and exporters next season if it does not approve the technology. More than 40 countries have approved the technology, but China has not for unknown reasons.
The situation highlights how much Brazil's giant farm sector and overall economy has become hitched to the Asian giant, which is its top trading partner but can be a fickle customer.
"We expect to have Chinese approval in the coming months so that when soybean planting starts in October or November, farmers can plant Intacta," Monsanto President in Brazil Rodrigo Santos told Reuters in an interview late Thursday.
He said the Chinese had completed technical studies on the seed and Monsanto is expecting an official sign-off from the agriculture ministry. The recent regime change in China may have slowed the process, Santos said.
Intacta seeds were planted in test fields across Brazil this year and if any of them make it into cargoes bound for China, it could give the country reason to reject an entire shipment.
The Chinese have already spooked the local soybean market this season by canceling orders because of slow delivery from Brazil's congested ports. Futures prices fell on the news.
Brazil's soybean output has swelled thanks to ample Chinese demand and to GMO technology Monsanto began selling in Brazil in 2005, known as Roundup Ready. It is present in 85 percent of Brazil's soy fields and is designed to withstand an herbicide known as glyphosate that kills invasive weeds.
Testing Intacta, Fighting for Royalties
Santos said 500 producers planted test fields with Intacta last year -- under strict supervision to ensure the beans were kept off the market and did not end up in soy cargoes to China. Intacta showed much higher yields than Roundup Ready, he said.
Monsanto hopes an in-country Intacta launch will help avoid messy legal disputes that have cropped up around Brazil due to confusion over when Monsanto's patent in Roundup Ready expires.
"With Roundup Ready we didn't have the conditions to launch the technology in Brazil, there was no legal security and the soy came in through Argentina," Santos said.
Farmers say Roundup Ready's patent expired in 2010 in Brazil but Monsanto argues it should be able to charge royalties on the technology through 2014, when the U.S. patent ends.
An upper court judge rejected Monsanto's request to extend the patent last month and the company agreed to stop charging royalties until the dispute is settled. Monsanto had been charging farmers 22 reais ($11) per hectare.
Producers harvest nearly three tonnes of soy per hectare on average in Brazil. Royalties charged on Intacta will likely be higher because the pest-resistant technology saves farmers money on chemical sprays.
"Monsanto already appealed to the Supreme Court and the court has agreed to hear the case," Santos said. "We expect the patent in Brazil to have the same validity as it does in the United States."
He declined to say how much Monsanto could have to pay farmers if the court rules against it, but said local media reports that put the number at 2 billion reais were "way over estimated".
While the case makes its way through the courts, Monsanto is negotiating agreements with individual farmers, offering licenses for Intacta technology in exchange for an agreement to drop lawsuits over Roundup Ready royalties.
Monsanto has invested $1 billion in Brazil in the past 10 years, where it focuses on technology for soybeans, corn and cotton. It may also launch sugar cane biotechnology in Brazil, the world's largest sugar producer. The country is starting to ban the practice of burning cane fields, its traditional pest-control measure.
As a top global exporter of coffee, meat and orange juice as well as soybeans, corn and sugar, Brazil is widely expected to take on the role of feeding a growing global population.
Santos, who was Monsanto's Vice President in Brazil until January, said opposition to genetically modified crops had declined significantly in Brazil, where agriculture accounts for 22 percent of gross domestic product.
"People here know a highly technical, productive agriculture is essential because of the important role agriculture plays in the economy," he said.